Is Obamacare In A Death Spiral?

The Affordable Care Act has had its detractors from the beginning. Beyond the partisan arguments, analytical types have been focusing on factors such as the cost of coverage and risk adjustment. Analysis and predictions are not promising.

In terms of consumer coverage cost, deductibles and premiums have been steadily increasing in the lower cost bronze and silver plans, triggering a revolt of the young and heathly policyholders who are vital to the success of ACA. When healthy policyholders drop coverage, it leaves the insurer little choice but to raise premiums, and that could cause more healthy policyholders to walk away from their increasingly expensive plans. 1,2

Insurer costs are also out of control. UnitedHealth Group recently announced estimated losses of more than $1 billion for 2015 and 2016 under Obamacare, and as a result the company was pulling out of most exchanges. Health Care Service Corporation has lost over $2 billion, and may also leave exchanges as a result. As more commercial insurers do the same, there will be even less competition — and higher premiums for policyholders.2

The Risk Adjustment system that balances the extra costs of sick policyholders with the lower costs of healthy policyholders is also in trouble. The goal to control Federal costs for the ACA by using healthy policyholders to underwrite costs of extremely ill policy holders has never been met. Because the system was designed without an external source to fund Risk Adjustment, it continues to raise the price of low cost policies. The pool of healthy policyholders has never hit the target of 40% that was necessary to maintain low premiums, and that pool of healthy people is now shrinking due to policy cost increases. 3

Problems with Risk Adjustment include an inabilty to accurately calculate risk, privacy concerns for patients, and administrative costs which cannot justify themselves due to the poor accuray of current predictions. Currently only 20% of health costs in the exchanges are predicted with any degree of accuracy, resulting in billions of dollars in cost overruns with no outside funding from the government to cover these overruns. 3

In 2016, insurers requested $2.87 billion in assistance but received just $362 million. That amounts to almost a $2.5 billion shortfall, resulting in closure of more than half of Obamacare healthcare exchange providers. 4

As more insurers and healthy policyholders abandon the ACA experiment, there will be even less competition — and higher premiums. Commercial insurers who stay in Obamacare are responding to massive losses by narrowing provider networks, with fewer doctors and hospitals to choose from, replaced by Medicaid HMOs with even less doctor choice. 2

Can fixes be made to salvage Obamacare? Most experts agree that change is inevitable. Costs will either continue to be passed to the end user, or the taxpayer.5

The immediate and continuing failure in Obamacare appears to be in reigning in out of control health care costs. HealthView Services, which makes health-care cost projection software, estimates for the next decade an average annual 5.5 percent inflation rate for medical care. 6

The mean number of issuers has declined from 2.5 in 2017 to 2.1 in 2018, and the number of plan choices available on the Exchanges is also shrinking. Data released in October 2017 from data.healthcare.gov show that choice in the types of plans available continued to diminish between 2017 and 2018 - Along with a continued reduction in the number of issuers has come a reduction in the diversity of plan types. In 2017, 165 of the 420 rating areas sold only one type of plan, either an HMO, PPO, POS or EPO. For 2018, insurance monoculture has expanded. Now, 219 of the 420 rating areas (52%), have only one type of plan available.
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Where is Obamacare headed? Find out what Annuity.com Founder Bill Broich has learned as he explored the options available to his family as well as his clients. His downloadable paper reviews some of the changes to health care in store for Baby Boomers in particular, and Americans in general, over the next few years. Click Here to Download the Paper.

Bret Roby

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